In Depth – New Administration Embraces Investment
Advice Bill

Washington, DC, July 17, 2001 (PLANSPONSOR.com) - In
a turnaround from its position under the Clinton
administration, the Department of Labor Tuesday voiced
support for the Retirement Security Advice Act (HR 2269), a
bill similar to one that died in Congress last
year.

The DoL position was voiced in testimony by Ann Combs,
Assistant Secretary of Labor for Pension and Welfare
Benefits before the Subcommittee for Employer-Employee
Relations, chaired by this year’s and last year’s sponsor
of the legislation, Representative John Boehner
(R-Ohio).

The bill would offer employers more explicit protections
for providing investment advice to their participants,
while at the same time removing ERISA-imposed barriers that
have largely precluded money managers from offering the
service for a fee.

Almost exactly a year ago, the DOL had taken a
significantly different stance on HR 4747, a bill nearly
identical to HR 2269. The DoL then argued that current law
did an adequate job of protecting employers who were
prudent in their selection of an advice provider. (see The
Details:
How Far Can Education Go Without Crossing the Line?
).

Education Not Enough

“Investment education, while important, is simply not
enough,” Combs said Tuesday. “The Department’s 1996
guidance sought to allay these fears, but a conforming
statutory amendment would serve to provide the certainty
employers seek.” Combs was referring to fiduciary concerns
that have prevented many plan sponsors from offering
advice, concerns that the DoL sought to address in a
guideline it issued in 1996.

“The growing integration of the financial services
industry,” coupled with “the desire of many employers to
deal with one provider for all 401(k) services” has led
some providers to seek a prohibited transaction exemption
to offer the advice, albeit “conditioned on fairly specific
structural limitations,” Combs said.

Combs said that the Department was presently conducting
a review of agency policy that would lead to a “common
sense” approach that protects participants, but is flexible
enough to allow for competition and innovation.” She
said that review would be completed this fall.

What If?

In a subsequent question and answer session,
Representative Robert Andrews (D-NJ) offered two “what if”
scenarios to clarify Comb’s understanding of the bill in
its current form. He was addressing the potential conflict
of interest critics of the bill charge will emerge when
money managers are also allowed to offer paid investment
advice.

In one scenario, he outlined a situation where an
employee is “told” about the potential conflict of
interest in the advice product in a large manual at the
point of hire, and no more. Combs said that
situation likely wouldn’t pass muster under the current
bill, which requires “clear and conspicuous
disclosure.” Andrews honed in on language in the
bill requiring that disclosure take place “at the time of
advice or before.” Chairman Boehner noted the
intent was to offer “contemporaneous disclosure”, and
suggested the language might be tightened to clarify that
point.

In the second situation, Andrews outlined a situation
where a bank employee working in the pension department
was offering advice, though they were not certified or
registered to do so in any way. Combs said that in
her understanding of the current bill, that person could
offer advice – that the bank would be the fiduciary,
bound by the law. She also noted that the bank, in
all likelihood, would want to make sure that the
individual was trained or licensed in some way.